The Bank of Israel has tightened its restrictions on mortgages in view of the large amount of new mortgages. In the 12 months through July, more than NIS 56 billion in new mortgages were taken, and the rate of new mortgages has not greatly slowed despite the Bank of Israel's restrictions imposed in the past few years.
The Bank of Israel has imposed three new restrictions. First, Supervisor of Banks David Zaken has banned banks from granting mortgages to borrowers if the monthly payment is more than 50% of the borrower's monthly income. "Housing loans in which the monthly payment is 40-50% of income will be weighted at 100% for the purpose of calculating the capital adequacy ratio," states the Bank of Israel.
Banks will not be allowed to grant housing loans in which the variable interest component exceeds 66.7% of the total. This restriction will apply to variable interest loans across all time periods, and comes on top of the current restriction which caps the variable interest component at one third of housing loans of less than five years.
The Bank of Israel also bans banks from approving mortgages of more than 30 years.
"The new guidelines restrict the proportion of repayment of income, the variable interest component of the loan, and the total repayment period," says the Bank of Israel. "The objective of the guidelines is to reduce risk, particularly the interest rate risk, for the public, which is taking mortgages on terms that are liable to jeopardize the future ability to repay the mortgage, resulting in potential risk to the banking system from these loans ."
Published by Globes [online], Israel business news - www.globes-online.com - on August 21, 2013
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